Regulator Reputation Effects in Developing Countries: Evidence from the Toxics Pollution Registry of Mexico

In this study, we document regulator reputation effects in a developing country. We construct a panel on 3,432 major toxic polluters from 2004 to 2015 using detailed plant-specific data on pollution, inspections, and fines. Results show that: regulators target polluters based on past violations; fines induce more accurate self-reporting and result in higher self-reported pollution at the sanctioned facility; increased fines on other polluters lead to long-term improvements in environmental performance and reductions in toxic pollution. An increase in amount fined by 1% on all others in the same municipality leads to an individual plant reducing its annual pollution discharges by 0.1% for all seven toxics examined. These findings are significant as toxic pollutants are harmful even at small concentrations. We highlight synergies in costs of monitoring and enforcement of mandatory reporting regulation.